25 Compelling Reasons Manufacturing is Moving Back to US & EU from China
Manufacturing has traditionally been a cornerstone of the US and EU economies. Still, in recent years many companies have chosen to outsource production to China due to lower costs and increased efficiency. Now, however, there is a growing movement of those same companies bringing operations back home. The decision by several companies to move manufacturing back to the US and EU from China has been met with approval and applause.
This shift is being driven largely by practical considerations, including increased wages in China, transport costs, slower timelines caused by language barriers, tariffs imposed on Chinese imports, and the imperative of protecting corporate data. For these reasons and more, manufacturing is becoming a strong source of growth in the US and EU.
In addition, experts have concluded that relocating production closer to the point of consumption should help reduce costs and maintain greater control over the supply chain. That ultimately leads to higher-quality goods and services that are being sold at lower prices than before. This crucial shift keeps jobs in the US and EU markets, helping boost both economies as a result. It's clear that this move can benefit both companies and consumers alike, making it something worth considering for more manufacturers in the future.
Read on below to learn about the 25 main reasons the West is leaving Chinese manufacturing behind:
Rising labor costs in China: Over the years, China's labor costs have risen, making it less competitive for manufacturing compared to the past. (Source: The Wall Street Journal - https://www.wsj.com/articles/chinas-rising-labor-costs-ripple-through-global-supply-chains-1542727446)
Intellectual property protection concerns: The US and EU companies often face intellectual property theft and forced technology transfers in China, pushing them to bring manufacturing back home. (Source: CNBC - https://www.cnbc.com/2019/06/28/companies-are-leaving-china-due-to-trade-war-not-tariffs-alone.html)
Trade wars and tariffs: The trade wars, especially between the US and China, have led to increased tariffs and trade restrictions, making it more expensive to manufacture in China. (Source: Forbes - https://www.forbes.com/sites/kenrapoza/2018/08/29/trade-war-casualties-factories-shifting-out-of-china/?sh=3fc5b5c21e4d)
Supply chain resilience: The COVID-19 pandemic exposed the vulnerability of global supply chains, prompting companies to reconsider their reliance on China and move production closer to home. (Source: The Economist - https://www.economist.com/business/2020/05/14/companies-will-have-to-get-used-to-political-disruptions-to-supply-chains)
Automation and technology advancements: The growing use of automation and advanced technologies in manufacturing is reducing the labor cost advantage of China, making it more feasible for companies to produce goods domestically. (Source: McKinsey & Company - https://www.mckinsey.com/business-functions/operations/our-insights/automation-robotics-and-the-factory-of-the-future)
Consumer preferences for locally made products: Increasingly, consumers prefer products made in their home countries, leading companies to reshore manufacturing to meet this demand. (Source: IndustryWeek - https://www.industryweek.com/the-economy/article/22026297/us-consumers-prefer-products-made-in-usa)
Government incentives and policies: The US and EU governments are offering incentives and implementing policies to encourage companies to bring manufacturing back to their home countries. (Source: Deloitte - https://www2.deloitte.com/us/en/pages/manufacturing/articles/us-manufacturing-competitiveness.html)
Environmental concerns and sustainability: Companies are increasingly focusing on sustainability and reducing their carbon footprint, which can be achieved by reshoring manufacturing and reducing transportation distances. (Source: PwC - https://www.pwc.com/gx/en/services/sustainability/publications/pulse-survey.html)
Shorter lead times and improved responsiveness: Manufacturing closer to the target market can help companies reduce lead times and respond more quickly to changes in customer demand. (Source: MIT Sloan - http://mitsloan.mit.edu/shared/ods/documents/?DocumentID=2417)
Better quality control: By moving production closer to home, companies can maintain tighter quality control over their products, reducing the risk of defects and recalls. (Source: Quality Digest - https://www.qualitydigest.com/inside/quality-insider-article/reshoring-manufacturing-jobs-us-why-and-how.html)
Skilled workforce: The US and EU have a skilled workforce that can support advanced manufacturing, making it an attractive option for companies looking to reshore production. (Source: The Brookings Institution - https://www.brookings.edu/research/why-does-manufacturing-matter-which-manufacturing-matters-a-policy-framework/)
Lower energy costs: The US and EU have benefited from lower energy costs, particularly due to the shale gas revolution in the US, making domestic manufacturing more cost-competitive. (Source: EIA - https://www.eia.gov/todayinenergy/detail.php?id=43915)
Strengthening domestic industries: Governments in the US and EU are keen to support and strengthen their domestic manufacturing industries, resulting in various initiatives and policies that incentivize reshoring. (Source: The White House - https://trumpwhitehouse.archives.gov/briefings-statements/president-donald-j-trump-putting-american-workers-families-first/)
Geopolitical risks: Geopolitical tensions between the US, EU, and China can disrupt supply chains, leading companies to consider diversifying their manufacturing locations and bringing production back to their home countries. (Source: Harvard Business Review - https://hbr.org/2020/03/coronavirus-is-proving-that-we-need-more-resilient-supply-chains)
Increased control over the entire value chain: Reshoring manufacturing allows companies to have better control over their entire value chain, including product design, production, and distribution. This can lead to better coordination, increased efficiency, and ultimately, more competitive products. (Source: The Balance - https://www.thebalance.com/reshoring-definition-reasons-and-examples-3305916)
Growing focus on reshoring initiatives: Organizations like the Reshoring Initiative in the US are dedicated to providing resources, tools, and support to companies considering reshoring their manufacturing operations. (Source: The Reshoring Initiative - https://www.reshorenow.org/)
Nearshoring alternatives: Many US and EU companies are exploring nearshoring options, such as manufacturing in Mexico or Eastern Europe, which provide cost benefits and proximity to their target markets. (Source: Forbes - https://www.forbes.com/sites/forbesbusinesscouncil/2021/03/04/nearshoring-reshaping-manufacturing-in-a-post-pandemic-world/?sh=2aeeb7ab54f0)
National security concerns: Governments in the US and EU are concerned about their reliance on China for essential goods, such as pharmaceuticals and medical supplies, which has led to a push for greater self-reliance in critical industries. (Source: Reuters - https://www.reuters.com/article/us-health-coronavirus-usa-drugstores-idUSKBN23G2X1)
Currency fluctuations: Changes in currency exchange rates can impact the cost of manufacturing in China. Reshoring can help mitigate the risks associated with currency fluctuations. (Source: International Trade Administration - https://legacy.trade.gov/mac/ocg/2017/two-way-trade/reshoring.asp)
Improved logistics and supply chain management: Advances in logistics and supply chain management technologies have made it easier for companies to manage complex global operations, encouraging them to consider reshoring. (Source: Supply Chain Dive - https://www.supplychaindive.com/news/reshoring-manufacturing-supply-chain/582438/)
E-commerce and changing consumer behavior: The growth of e-commerce and the need for faster delivery times drive companies to reconsider their supply chains and bring manufacturing closer to their customer base. (Source: IndustryWeek - https://www.industryweek.com/the-economy/article/21117817/ecommerce-is-driving-reshoring)
Corporate social responsibility: Companies are increasingly focused on corporate social responsibility, including supporting local communities and economies, which can influence their decision to reshore manufacturing. (Source: CSRwire - https://www.csrwire.com/press_releases/41687-Reshoring-Initiative-Data-Report-Reshoring-and-FDI-Boost-US-Manufacturing-in-2016)
Made in USA/EU branding: The "Made in USA" or "Made in EU" label can be a selling point for products, as it signifies quality and local craftsmanship, encouraging companies to reshore production. (Source: The Balance - https://www.thebalance.com/what-is-made-in-america-3305903)
Access to research and development: Reshoring manufacturing operations can enable companies to better integrate their R&D activities with production, fostering innovation and improving product development processes. (Source: McKinsey & Company - https://www.mckinsey.com/business-functions/operations/our-insights/the-future-of-manufacturing)
Tax reforms and regulatory changes: Changes in tax laws and regulations, such as the 2017 US Tax Cuts and Jobs Act, can create a more favorable environment for companies to reshore their manufacturing operations. (Source: Tax Foundation - https://taxfoundation.org/tax-cuts-and-jobs-act-2017/)
With global competition and the intensifying pressures of a rapidly changing world economy, bringing manufacturing back to the United States and Europe from China is a crucial element of preserving our economic and national security in the future. This move will help bolster employment for thousands and create jobs that offer higher wages, more stability, and the potential for greater wealth accumulation.
Nations need to adapt rapidly to shifts in the geopolitical landscape to stay ahead of their opponents. Protecting a strong manufacturing base can ensure that countries like the US remain at the forefront of international trade. In addition, such a move can strengthen local economies by providing revenue and resources needed to create further advancements and protect interests abroad. Rebuilding our manufacturing capabilities is essential not just for ensuring economic stability in the short-term; but also for laying the foundation upon which we build our country’s capacity, resiliency and long-term prosperity.
